The latest on California politics and government

March 6, 2012

The Legislature's budget analyst says that lawmakers should postpone action on Gov. Jerry Brown's plan to make changes in the state Unemployment Insurance Fund until "a long-term solvency plan" is formulated.

With double-digit unemployment, California has been running multi-billion-dollar deficits in the Unemployment Insurance Fund (UIF), which is financed by payroll taxes on employers, and has borrowed $10 billion from the federal government to keep state payments flowing. The state is responsible for the first 26 weeks of benefits while the federal government pays for up to 73 more weeks.

Interest payments on the federal loan, more than $300 million, must be paid this year, and the state is borrowing money from the Disability Insurance Fund, which is paid by a tax on workers, to cover the interest. Brown proposes to continue that borrowing next year, but also to raise payroll taxes on employers to pick up the interest costs and tighten eligibility for unemployment benefits. The federal government, meanwhile, will also increase those taxes to repay its UIF loans if the state does not act.

"We recognize that, in light of uncertainty regarding federal UI reforms and the recovery of California's labor market, the Legislature may wish to take a wait-and-see approach during 2012 and delay enactment of a long-term solvency plan until next year," the LAO report says. "Enactment of a long-term plan will likely necessitate significant legislative deliberation and compromise among the various stakeholders of the UI system. For this reason, if the Legislature elects to delay addressing UI fund insolvency, we think that is would be premature to enact the governor's proposed employer surcharge and monetary eligibility changes."

The LAO says that to make the UIF solvent, the Legislature would probably have to boost payroll taxes and reduce eligibility for benefits further - tough issues with the economy still struggling.